Bridgeline Digital Inc

1. Description of Business

Bridgeline Digital is an AI-powered marketing technology company that offers a suite of products that help companies grow online revenue by driving more visitors to their websites, converting more visitors to purchasers, and increasing average order value per purchaser.

Bridgeline’s software is available through a cloud-based Software as a Service (“SaaS”) model. Additionally, Bridgeline’s software is available via a perpetual licensing business model, in which the software can reside on premise at the customer’s facility, or manage-hosted by Bridgeline. Bridgeline’s product offerings include:

Bridgeline Digital was incorporated under the laws of the State of Delaware on* August 28, 2000.*

The Company hasfour wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd., located in Bangalore, India; Bridgeline Digital Canada, Inc., located in Ontario, Canada; Hawk Search Inc. located in Rosemont, Illinois and Bridgeline Digital Belgium BV, located in Brussels, Belgium.

The Company’s corporate headquarters is located in Woburn, Massachusetts. The Company maintains regional field offices serving the following geographical locations: Woodbury, New York; Rosemont, Illinois; Atascadero, California; Ontario, Canada; and Brussels, Belgium.

Liquidity and Management’s Plans

The Company has historically incurred operating losses and used cash on hand and from financing activities to fund operations as well as develop new products. The Company is continuing to maintain tight control over discretionary spending for the2025 fiscal year. The Company believes that future revenues and cash flows will supplement its working capital and it has an appropriate cost structure to support future revenue growth.

The Company* mayoffer and sell, from time to time, inone* or more offerings, up to $50 million of its debt or equity securities, or any combination thereof. Such securities offerings* maybe made pursuant to the Company’s currently effective registration statement on Form S-3 (FileNo.* 333-262764), which was initially filed with the Securities and Exchange Commission on* February 16, 2022and declared effective on March 4, 2022 (the “Shelf Registration Statement”). A complete description of the types of securities that the Company maysell is described in the Preliminary Prospectus contained in the Shelf Registration Statement. As of the date of the filing of this Annual Report, there areno* active offerings for the sale or obligations to purchase any of the Company’s securities pursuant to the Shelf Registration Statement. There can beno assurances that the Company will offer any securities for sale or that if the Company does offer any securities that it will be successful in selling any portion of the securities offered on a timely basis if at all, or on terms acceptable to us. Further, our ability to offer or sell such securities* may*be limited by rules of the NASDAQ Capital Market.

We are currently evaluating our future financing options, including the filing of a new shelf registration statement to replace our existing Shelf Registration Statement, which is set to expire on* March 4, 2025.A new registration statement would provide us with continued flexibility to access capital and support our business objectives. The decision to file a new registration statement and the timing of any such filing will depend on several factors, including market conditions, our capital requirements, and our eligibility to utilize Form S-3 at the time of filing. There can beno* assurance that we will proceed with filing a new registration statement or that, if filed, it will be declared effective by the SEC.

2.** Summary of Significant Accounting Policies**

Basis of Presentation and Principles of Consolidation

The Company’s fiscal year end is* September**30th.* The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. The most significant estimates included in these consolidated financial statements are the valuation of accounts receivable, including the adequacy of the allowance for credit losses, valuation of long-lived assets, recognition and measurement of deferred revenues, fair value of contingent consideration, fair value measurements related to the valuation of warrants and deferred tax valuation allowance. The complexity of the estimation process and factors relating to assumptions, risks and uncertainties inherent with the use of the estimates affect the amount of revenue and related expenses reported in the Company’s consolidated financial statements. Internal and external factors can affect the Company’s estimates. Actual results could differ from these estimates under different assumptions or conditions.

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Cash and Cash Equivalents

The Company considers all highly liquid instruments with original maturity ofthree months or less from the date of purchase to be cash equivalents.

The Company’s cash is maintained with what management believes to be high-credit quality financial institutions. At times, deposits held at these banks* may*exceed the insured limits. Management believes that the financial institutions that hold the Company’s deposits are financially sound and have minimal credit risk. Risks associated with cash and cash equivalents are mitigated by the Company’s investment policy, which limits the Company’s investing of excess cash into only money market mutual funds.

Concentration of Credit Risk, Significant Customers, and Off-Balance Sheet Risk

Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable.

The Company extends credit to customers on an unsecured basis in the normal course of business. Management performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit when deemed necessary. Accounts receivable are carried at original invoice amount, less an estimate for credit losses based on a review of all outstanding amounts.

The Company hasno off-balance sheets risks such as foreign exchange contracts, interest rate swaps, option contracts or other foreign hedging agreements.

Accounts Receivable

The allowance for credit losses is determined based upon a variety of judgments and factors. Factors considered in determining the allowance include historical collection, write-off experience, and management's assessment of collectability from customers, including current conditions, reasonable forecasts, and expectations of future collectability and collection efforts. Management continuously assesses the collectability of receivables and adjusts estimates based on actual experience and future expectations based on economic indicators. Management also monitors the aging analysis of receivables to determine if there are changes in the collections of accounts receivable. Receivable balances are written-off against the allowance for credit losses when such balances are deemed to be uncollectible.

Revenue Recognition

The Company derives its revenue fromtwo sources: (i) Subscription and Perpetual Licenses, which are comprised of software subscription fees (“SaaS”), perpetual software licenses, and maintenance for post-customer support (“PCS”) on perpetual licenses, and (ii) Digital Engagement Services, which are professional services to implement our products such as web development, digital strategy, information architecture and usability engineering search. Customers who license the software on a subscription basis, which can be described as “Software as a Service” or “SaaS,” donot take possession of the software.

Revenue is recognized when control of these services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. If the consideration promised in a contract includes a variable amount, for example, overage fees, contingent fees or service level penalties, the Company includes an estimate of the amount it expects to receive for the total transaction price if it is probable that a significant reversal of cumulative revenue recognized willnot occur. The Company’s subscription service arrangements are non-cancelable and donot contain refund-type provisions. Revenue is reported net of applicable sales and use tax.

The Company recognizes revenue from contracts with customers using afive-step model as described below:

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Disaggregation of Revenue

The Company provides disaggregation of revenue based on geography and product groupings (see Note15) as it believes this best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Customer Payment Terms

Payment terms with customers typically require payment 30 days from invoice date. Payment terms* mayvary by customer but generally donot* exceed 45 days from invoice date. Invoicing for digital engagement services is either monthly or upon achievement of milestones and payment terms for such billings are within the standard terms described above. Invoices for subscriptions and hosting are typically issued monthly and are generally due in the month of service.

Warranty

Certain arrangements include a warranty period, which is generally 30 days from the completion of work. In hosting arrangements, the Company provides warranties of up-time reliability. The Company continues to monitor the conditions that are subject to the warranties to identify if a warranty claim* may*arise. If it is determined that a warranty claim is probable, then any related cost to satisfy the warranty obligation is estimated and accrued. Warranty claims to date have been immaterial.

Property and Equipment

The components of property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets (three tofive years). Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful life of the asset or the lease term. Repairs and maintenance costs are expensed as incurred.

Internal-Use Software

Costs incurred in the preliminary stages of development were expensed as incurred. Once an application had reached the development stage, internal and external costs, if direct and incremental, were capitalized until the software was substantially complete and ready for its intended use. Capitalization ceased upon completion of all substantial testing. The Company also capitalized costs related to specific upgrades and enhancements when it was probable that the expenditures would result in additional functionality. Capitalized costs were recognized as part of equipment and improvements. Training costs were expensed as incurred. Internal use software was amortized on a straight-line basis over its estimated useful life, generally three years.

Implementation costs incurred in cloud-computing arrangements that are a service contract are capitalized and amortized over the life of the arrangement.

Research and Development and Software Development Costs

Costs for research and development of a software product to sell, lease or otherwise market are charged to operations as incurred until technological feasibility has been established. Once technological feasibility has been established, certain software development costs incurred during the application development stage are eligible for capitalization. Based on the Company’s software product development process, technological feasibility is established upon completion of a working model.

Software development costs that are capitalized are amortized to cost of sales over the estimated useful life of the software, typically three years. Capitalization ceases when a product is available for general release to customers. Capitalization costs are included in other assets in the consolidated financial statements. The Company didnot incur any development costs during fiscal2024 and fiscal2023.

Intangible Assets

All intangible assets have finite lives and are stated at cost, net of amortization. Amortization is computed over the estimated useful life of the related assets on a straight-line method as follows:

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in each business combination. Goodwill isnot amortized, but it is subject to an annual assessment for impairment, which the Company performs during thefourth quarter, or more frequently if events occur or circumstances change such that it is more likely thannot that an impairment* mayexist. Goodwill is assessed at the consolidated level asone* reporting unit.

In applying the goodwill impairment test, the Company has the option to perform a qualitative test (also known as “Step0”) or a quantitative test (“Step1”). Under the Step0 test, the Companyfirst assesses qualitative factors to determine whether it is more likely thannot that the fair value of the reporting unit is less than its carrying value. Qualitative factors* mayinclude, but arenot* limited to, economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting unit and other entity and reporting unit specific events. If after assessing these qualitative factors, the Company determines it is “more-likely-than-not” that the fair value of the reporting unit is less than the carrying value, then performing the Step1 quantitative test is necessary.

Step1 of the quantitative test requires comparison of the fair value of the reporting unit to the respective carrying value. If the carrying value of the reporting unit is less than the fair value,no impairment exists. Otherwise, the Company would recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value up to the amount of goodwill.

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The Company generally estimates the fair value using a weighting of the income and market approaches. The Company uses industry accepted valuation models. Under the income approach, the Company uses a discounted cash flow methodology which requires management to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, among others. For the market approach, the Company uses the guideline public company method. Under this method, the Company utilizes information from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit, to create valuation multiples that are applied to the operating performance of the reporting unit being tested, in order to obtain their respective fair values. The Company also reconciles the aggregate fair values of its reporting unit to its current market capitalization, allowing for a reasonable control premium. See Note6.

Valuation of Long-Lived Assets

The Company periodically reviews its long-lived assets, which consist primarily of property and equipment and intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate the carrying amount of such assets* may*exceed their fair value. Recoverability of these assets is assessed using a number of factors, including operating results, business plans, budgets, economic projections and undiscounted cash flows.

In addition, the Company’s evaluation considers non-financial data such as market trends, product development cycles and changes in management’s market emphasis. For the definite-lived intangible asset impairment review, the carrying value of the intangible assets is compared against the estimated undiscounted cash flows to be generated over the remaining life of the intangible assets. To the extent that the undiscounted future cash flows are less than the carrying value, the fair value of the asset is determined. If such fair value is less than the current carrying value, the asset is written down to the estimated fair value. There wereno impairments of long-lived assets, other than impairment of goodwill, in fiscal2024 or2023.

Business Combinations

The Company allocates the amount it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill. The Company bases the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. The Company allocates any excess purchase price that exceeds the fair value of the net tangible and identifiable intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated growth rates, cash flows and discounts rates and estimated useful lives could result in different purchase price allocations and amortization expense in current and future periods. Transaction costs associated with these acquisitions are expensed as incurred through acquisition related expenses on the consolidated statements of operations. In those circumstances where an acquisition involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments expected to be made as of the acquisition date. The Company re-measures this liability each reporting period and recognizes changes in the fair value through income (loss) before income taxes within the consolidated statements of operations.

Foreign Currency

The Company determines the appropriate method of measuring assets and liabilities as to whether the method should be based on the functional currency of the entity in the environment in which it operates or the reporting currency of the Company, the U.S. dollar. The Company has determined that the functional currency of its foreign subsidiaries are the local currencies of their respective jurisdictions. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Equity accounts are translated at historical rates, except for the change in retained earnings as a result of the income statement translation process. Revenue and expense items are translated into U.S. dollars at average exchange rates for the period. The adjustments are recognized as a separate component of stockholders’ equity and are included in accumulated other comprehensive income (loss). The Company’s foreign currency translation net losses for fiscal2024 and2023 were ($51) and ($28), respectively. Transaction gains and losses related to monetary assets and liabilities denominated in a currency different from a subsidiary’s functional currency are included in the consolidated statements of operations.

Segment Information

The Company hasone reportable segment.

Stock-Based Compensation

The Company accounts for stock-based compensation in the consolidated statements of operations based on the fair values of the awards on the date of grant on a straight-line basis over their vesting term. Compensation expense is recognized only for share-based payments expected to vest. The Company estimates forfeitures at the date of grant based on the Company’s historical experience and future expectations.

Common Stock Purchase Warrants

The Company estimates the fair value of common stock warrants issued to non-employees using a binomial options pricing model. The Company evaluates common stock warrants as they are issued to determine whether they should be classified as an equity instrument or a liability. Those warrants that are classified as a liability are carried at fair value at each reporting period, with changes in their fair value recognized in change in fair value of warrant liabilities in the consolidated statements of operations.

Advertising Costs

Advertising costs are expensed when incurred. Such costs were $74 thousand and $112 thousand for fiscal2024 and2023, respectively.

Employee Benefits

The Company sponsors a contributory401(k) plan allowing all full-time employees who meet prescribed service requirements to participate. The Company isnot required to make matching contributions, although the plan provides for discretionary contributions by the Company. The Company madeno contributions in either fiscal2024 or fiscal2023.

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Income Taxes

On* March 27, 2020,the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, contains modifications on the limitation of business interest for tax years beginning in2019* and2020, and permits net operating loss carryovers and carrybacks to offset100% of taxable income for taxable years beginning before2021. In addition, the CARES Act allows net operating losses incurred in2018, 2019, and2020 to be carried back to each of thefive preceding taxable years to generate a refund of previously paid income taxes. These provisions of the CARES Act didnot have a material effect on the Company’s estimated effective tax rate.

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company’s consolidated financial statements and tax returns. Deferred income taxes are recognized based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the temporary differences are expected to reverse. Valuation allowances are provided if based upon the weight of available evidence, it is more likely thannot that some or all of the deferred tax assets willnot be realized.

The Company provides for reserves for potential payments of taxes to various tax authorities related to uncertain tax positions. Reserves are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is “more likely thannot” to be realized following resolution of any uncertainty related to the tax benefit, assuming that the matter in question will be raised by the tax authorities. Interest and penalties associated with uncertain tax positions are included in the provision for benefit from income taxes.

The Company doesnot provide for U.S. income taxes on the undistributed earnings of its foreign subsidiaries, which the Company considers to be permanent investments.

The Company recognizes deferred tax assets for stock-based awards that result in future deductible amounts on our income tax returns, based on the amount of stock-based compensation recognized and the statutory tax rate in the jurisdiction in which we will receive a tax deduction.

Net Loss Per Share

The Company presents basic and diluted loss per share information for its common stock. Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per share attributable to common stockholders is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of the weighted average of outstanding stock options and warrants using the “treasury stock” method and convertible preferred stock using the as-if-converted method. The computation of diluted earnings per share doesnot include the effect of outstanding stock options, warrants and convertible preferred stock that are considered anti-dilutive.

Recently Adopted Accounting Standards

Financial Instruments–* Credit Losses*

Effective* October 1, 2023,the Company adopted the requirements of ASU2016* -13, Financial Instruments - Credit Losses (Topic326), Measurement of Credit Losses on Financial Instruments (“ASU2016 -13”), along with the subsequently issued guidance amending and clarifying various aspects of ASU2016 -13, using the modified retrospective method of adoption. In accordance with that method, the comparative periods’ information continues to be reported under the relevant accounting guidance in effect for that period. For the current period, the standard replaces the existing incurred credit loss model with the current expected credit losses model for financial instruments, including accounts receivable, through a cumulative-effect adjustment to accumulated deficit as of the beginning of thefirst reporting period in which the guidance is effective. Although the adoption of ASU2016 -13 didnot have a material impact on the condensed consolidated financial statements it represented a change in the accounting policy with respect to the estimation of allowance for uncollectible accounts.

Business Combinations

In* October 2021,the FASB issued ASUNo.* 2021-08, Business Combinations (Topic606*): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers*, which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic606 as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, if the acquiree prepared financial statements in accordance with U.S. GAAP. The amendment in this update is effective for fiscal years beginning after* December 15, 2022,including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The guidance should be applied prospectively to business combinations occurring on or after the effective date of the amendment in this update. The adoption of ASU2021*-08 during the Company's fiscal2024 first quarter didnot have a material impact on its consolidated financial statements and related disclosures.

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Recently Issued Accounting PronouncementsNot Yet Effective

Segment Reporting

In* November 2023,the FASB issued ASUNo.* 2023-07, Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures,* which requires that an entity report segment information in accordance with Topic280, Segment Reporting. The amendment in the ASU is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments in this Update are effective for fiscal years beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024.*The Company is currently evaluating the impact of the new standard on its consolidated financial statements which is expected to result in enhanced disclosures.

Income Taxes

In* December 2023,the FASB issued ASUNo.* 2023-09, Income Taxes (Topic740*): Improvements to Income Tax Disclosures,* which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this Update are effective for annual periods beginning after* December 15, 2024.*The Company is currently evaluating the impact of the new standard on its consolidated financial statements which is expected to result in enhanced disclosures.

Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures

In* November 2024,the FASB issued ASUNo.* 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic220*-40): Disaggregation of Income Statement Expenses,* which requires that an entity disclose, in the notes to financial statements, specified information about certain costs and expenses. The amendment in the ASU is intended to enhance the transparency and decision usefulness to better understand the major components of an entity’s income statement. The amendments in this Update are effective for annual reporting periods beginning after* December 15, 2026,and interim reporting periods beginning after December 15, 2027.*The Company is currently evaluating the impact of the new standard on its consolidated financial statements which is expected to result in enhanced disclosures.

All other Accounting Standards Updates issued butnot yet effective arenot expected to have a material effect on the Company’s future consolidated financial statements or related disclosures.

3. Accounts Receivable

Accounts receivable consist of the following:

As of and for the years ended* September 30, 2024* and2023 no customers exceeded10% of accounts receivable andno customers exceeded10% of the Company’s total revenues.

Allowance for Credit Losses

The following illustrates the activity in our allowance for credit losses on accounts receivable:

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4. Property and equipment

Property and equipment consist of the following:

Depreciation and amortization on the above assets were $102 and $144 in fiscal2024 and2023, respectively.

5. Fair Value Measurement and Fair Value of Financial Instruments

The Company’s financial instruments consist principally of accounts receivable, accounts payable, warrant liabilities, contingent consideration and long-term debt arrangements. The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, under U.S. GAAP, companies are required to provide disclosure and categorize assets and liabilities measured at fair value intoone ofthree different levels depending on the assumptions (i.e., inputs) used in the valuation. Level1 provides the most reliable measure of fair value while Level3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:

Level1—Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level2—Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that arenot active for which significant inputs are observable, either directly or indirectly.

Level3—Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

The carrying value of the Company’s accounts receivable and accounts payable approximate their fair value due to their short-term nature. As of* September 30, 2024* and2023, the aggregate fair values of long-term debts were$0.6 millionand $0.6 million, respectively, with an aggregate carrying value of$0.5 million and $0.7 million, respectively. The fair value is based on interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities. If measured at fair value in the consolidated financial statements, the debt would be classified as Level2 in the fair value hierarchy.

The Company’s warrant liabilities are measured at fair value at each reporting period with changes in fair value recognized in earnings during the period. The fair value of the Company’s warrant liabilities are valued utilizing Level3 inputs. Warrant liabilities are valued using a Monte Carlo option-pricing model, which takes into consideration the volatilities of comparable public companies, due to the relatively low trading volume of the Company’s common stock. The Monte Carlo option-pricing model uses certain assumptions, including expected life and annual volatility. The range and weighted average volatilities of comparable public companies utilized was 21% -55% and 40.3%, respectively, as of* September 30, 2024*, and 27.7% -84.5% and 45.5%, respectively, as of* September 30, 2023*. The volatility utilized in the Monte Carlo option-pricing model was determined by weighing 60% to the Company-specific volatility and 40% on comparable public companies. The significant inputs and assumptions utilized were as follows:

The Company recognized a gain $0.1 million and $0.6 million for the years ended* September 30, 2024* and2023, respectively, related to the change in fair value of warrant liabilities. The changes in fair value of warrant liabilities were due to changes in inputs, primarily a change in the stock price and the risk-free rate, to the Monte Carlo option-pricing model.

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The Company’s goodwill (see Note6) and contingent consideration obligations were from arrangements resulting from acquisitions, completed in prior periodsnot presented. The contingent consideration was a result of former potential future payments of consideration that were contingent upon the achievement of revenue targets and operational goals. Contingent consideration is recognized at its estimated fair value at the date of acquisition based on the Company’s expected probability of future payment, discounted using a weighted average cost of capital in accordance with accepted valuation methodologies.

The Company reviews and re-assesses the estimated fair value of contingent consideration liabilities at each reporting period and the updated fair value could differ materially from the initial estimates. The Company measures contingent consideration recognized in connection with acquisitions at fair value on a recurring basis using significant unobservable inputs classified as Level3 inputs. The Company uses a simulation-based model to estimate the fair value of contingent consideration on the acquisition date and at each reporting period. The simulation model uses certain inputs and assumptions, including revenue projections, an estimate of revenue discount and volatility rate based on comparable public companies’ data, and risk-free rate. Significant increases or decreases to either of these inputs in isolation could result in a significantly higher or lower liability with a higher liability limited to the contractual maximum of the contingent consideration liabilities. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate on the acquisition date and each reporting period and the amount paid will be recognized in earnings.

The fair value of contingent consideration was $250 thousand on* September 30, 2022,all of which was paid in October 2022.There wereno* contingent consideration amounts remaining thereafter.

Assets and liabilities of the Company measured at fair value as of* September 30, 2024* and2023, are as follows. Goodwill, net, is a non-recurring fair value measurement.

The following table provides a roll forward of the fair value, as determined by Level3 inputs, as follows:

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6. Goodwill

The carrying value of goodwill isnot amortized, but is tested for impairment annually as of* September30th,* as well as whenever events or changes in circumstances indicate that the carrying amount of a reporting unit* maynot* be recoverable. The purpose of an impairment test is to identify any potential impairment by comparing the carrying value of a reporting unit including goodwill to its fair value. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized shouldnot exceed the total amount of goodwill allocated to that reporting unit. Impairment charges are reflected as a reduction in goodwill in the Company’s consolidated balance sheets and an expense in the Company’s consolidated statements of operations.

Annual tests were performed at* September 30, 2024* and2023. Due to the current inflationary macro-economic conditions and a sustained decline in the Company’s market capitalization, for the2023 test, the Company elected to forgo the qualitative test and performed a quantitative goodwill impairment test by comparing the fair value of its reporting unit to its respective carrying value. The Company estimated the fair value of the reporting unit using a 75% and 25% weighting to the market approach and income approach, respectively, and a discount rate of 22.9%. The Company used industry accepted valuation models. Under the income approach (level3 inputs), the Company used a discounted cash flow methodology which required management to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, among others. For the market approach, the Company used the guideline public company method. Under this method, the Company utilized information from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit, to create valuation multiples that were applied to the operating performance of the reporting unit being tested, in order to obtain their respective fair values. The Company also reconciled the aggregate fair value of its reporting unit to its current market capitalization, allowing for a reasonable control premium.

For fiscal2024, management performed a qualitative assessment that didnot result in any impairment indicators at* September 30, 2024*.

Based on the impairment assessment performed*,* the Company recognized a goodwill impairment charge of $7.5 million, all of which was attributable to goodwill, during fiscal2023. The Company concluded that the definite-lived and other long-lived assets werenot impaired.

Changes in the carrying value of goodwill are as follows:

7. Intangible Assets

The components of intangible assets, net of accumulated amortization, are as follows:

Total amortization expense related to intangible assets was $982 and $1,378 for the years ended* September 30, 2024* and2023, respectively, and is reflected in Operating expenses on the consolidated statements of operations. The estimated amortization expense for fiscal years2025, 2026, 2027, 2028 and thereafter is $734, $673, $559, $559 and $1,383, respectively.

8. Accrued Liabilities

Accrued liabilities consist of the following:

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9. Restructuring and Acquisition Related Expenses

The Company incurred restructuring and acquisition related expenses of $0.2 million and $0.1 million during the years ended* September 30, 2024* and2023, respectively, which are included in Restructuring and acquisition related expenses in the consolidated statements of operations.

10. Long-term Debt

On* March 1, 2021,the Company assumed the outstanding long-term debt obligations of an acquired business and issued a seller note toone* of the selling stockholders. The assumed debt obligations and seller note are denominated in Euros.

Long-term debt consists as follows:

At* September 30, 2024*, future maturities of long-term debt are as follows:

11. Leases

The Company leases facilities in the United States for its corporate and regional field offices. During the years ended* September 30, 2024* and2023, the Company was also a lessee/sublessor for certain office locations.

Determination of Whether a Contract Contains a Lease

We determine if an arrangement is a lease at inception, or upon modification of a contract and classify each lease as either an operating or finance lease at commencement. The Company reassesses lease classification subsequent to commencement upon a change to the expected lease term or a modification to the contract. Operating leases represent the Company’s right to use an underlying asset as lessee for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease.

A contract contains a lease if the contract conveys the right to control the use of the identified property or equipment, explicitly or implicitly, for a period of time in exchange for consideration. Control of an underlying asset is conveyed if we obtain the rights to direct the use of and obtain substantially all of the economic benefit from the use of the underlying asset. At commencement, contracts containing a lease are further evaluated for classification as an operating lease or finance lease based on their terms.

ROU Model and Determination of Lease Term

The Company uses the Right-of-Use (“ROU”) model to account for leases, which requires an entity to recognize a lease liability and ROU asset on the lease commencement date. A lease liability is measured equal to the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rates implicit in the Company’s leases arenot readily determinable. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease payments include payments made before the commencement date and any residual value guarantees, if applicable. The initial ROU asset consists of the initial measurement of the lease liability, adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned. When determining the lease term, the Company includes option periods when it is reasonably certain that those options will be exercised.

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Lease Costs

For operating leases, minimum lease payments, including minimum scheduled rent increases, are recognized as operating lease costs on a straight-line basis over the applicable lease terms. Some operating lease arrangements include variable lease costs, including real estate taxes, insurance, common area maintenance or increases in rental costs related to inflation. Such variable payments, other than those dependent upon a market index or rate, are excluded from the measurement of the lease liability and are expensed when the obligation for those payments is incurred.

Significant Assumptions and Judgments

Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, butnot limited to, property values, market rents, useful life of the underlying property, discount rate and probable term, all of which can impact (1) the classification as either an operating or finance lease, (2) measurement of lease liabilities and ROU assets and (3) the term over which the ROU asset and leasehold improvements are amortized. The amount of depreciation and amortization, interest and rent expense would vary if different estimates and assumptions were used.

The components of net lease costs were as follows:

Cash paid for amounts included in the measurement of lease liabilities was $177 thousand and $233 thousand for the years ended* September 30, 2024* and2023, respectively, all of which represents operating cash flows from operating leases. As of* September 30, 2024* and2023, the weighted average remaining lease term was 1.0 and 3.1 years, respectively, and the weighted average discount rate was 9.4% and 7.0% for the years ended* September 30, 2024* and2023, respectively.

At* September 30, 2024*, future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess ofone year, which have commenced, were as follows:

As of* September 30, 2024*, the Company hadno lease commitments that extend past fiscal2028, assuming the Company doesnot exercise its termination option in2025. The Rosemont, Illinois lease contains an early termination clause, which the Company expects to execute, under which the lease can be terminated on* August 31, 2025*upon payment of a $93 thousand termination fee.

Starting* October 1, 2023,the Company has subleased its office space in Rosemont, Illinois. The sublease is for $6 thousand per month, through August 31, 2025.*

At* September 30, 2023*, future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess ofone year were as follows:

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12. Stockholders’** Equity**

Under our Certificate of Incorporation, we are authorized, subject to limitations prescribed by Delaware law and our Charter, to issue up to 1,000,000 shares of preferred stock inone or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions. Our Board of Directors can increase or decrease the number of shares of any series, butnot below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our Board of Directors* may*authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock.

Series A Convertible Preferred Stock

The Company has designated 264,000 shares of its preferred stock as Series A Convertible Preferred Stock (“Series A Preferred Stock”). The shares of Series A Preferred Stock** may** be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series A Preferred Stock to be converted, multiplied by the stated value of $10 and (ii) divided by the conversion price in effect at the time of conversion. As of* September 30, 2024* and2023**, the Company hadno shares of Series A Preferred Stock outstanding.

Series B Convertible Preferred Stock

The Company has designated 5,000 shares of its preferred stock as Series B Convertible Preferred Stock (“Series B Preferred Stock”). The shares of Series B Preferred Stock** may** be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series B Preferred Stock to be converted, multiplied by the stated value of $1,000 and (ii) divided by the conversion price in effect at the time of conversion. As of* September 30, 2024* and2023, the Company hadno shares of Series B Preferred Stock outstanding.

Series C Convertible Preferred Stock

The Company has designated 11,000 shares of its preferred stock as Series C Convertible Preferred Stock (“Series C Preferred Stock”). The shares of Series C Preferred Stock** may** be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series C Preferred Stock to be converted, multiplied by the stated value of $1,000 and (ii) divided by the conversion price in effect at the time of conversion. Series C Preferred Stock vote on an as-converted basis along with shares of the Company’s common stock, arenot entitled to receive dividends, unless specifically declared by our Board of Directors, and in the event of any liquidation, dissolution or winding up of the Company the holders of Series C Preferred Stock are entitled to receive in preference to the holders of common stock, Series A Preferred Stock, Series B Preferred Stock and any other stock, the amount equal to the stated value per share of Series C Preferred Stock. The Company* maynot* effect, and a holder willnot be entitled to, convert the Series C Preferred Stock or exercise any Series C Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed4.99% (or, at the election of the holder,9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise. As of* September 30, 2024* and*2023,* the Company had 350 shares of Series C Preferred Stock outstanding, which were convertible into an aggregate of 38,889 shares of the Company’s common stock.

Series D Convertible Preferred Stock

The Company has designated 4,200 shares of its preferred stock as Series D Convertible Preferred Stock (“Series D Preferred Stock”). The shares of Series D Preferred Stock* maybe converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series D Preferred Stock to be converted, multiplied by the stated value of $1,000 and (ii) divided by the conversion price in effect at the time of conversion. The Company may**not* effect, and a holder willnot be entitled to convert, the Series D Preferred Stock or exercise any Series D Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder,9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise. As of* September 30, 2024* and2023, the Company hadno shares of Series D Preferred Stock outstanding.

Amended and Restated Stock Incentive Plan

The Company has granted common stock, common stock warrants, and common stock option awards (the “Equity Awards”) to employees, consultants, advisors and former debt holders of the Company and to former owners and employees of acquired companies that have become employees of the Company. The Company’s Amended and Restated Stock Incentive Plan (the “Plan”) provided for the issuance of up to 5,000 shares of common stock. This Plan expired in* August 2016.On April 29, 2016,the stockholders approved a new stock incentive plan, the2016* Stock Incentive Plan (the*“2016* Plan”). The2016 Plan authorizes the award of incentive stock options, non-statutory stock options, restricted stock, unrestricted stock, performance shares, stock appreciation rights and any combination thereof to employees, officers, directors, consultants, independent contractors and advisors of the Company. The2016 Plan provides for the issuance in the aggregate of up to 2,400,000 shares of common stock associated with awards granted under the Stock Incentive Plan. As of* September 30, 2024*, there were 2,107,895 options outstanding and 38,940 shares available for future issuance under the2016 Plan.

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Compensation Expense

Compensation expense is generally recognized on a graded accelerated basis over the vesting period of grants. Compensation expense is recorded in the consolidated statements of operations with a portion charged to Cost of revenue and a portion to Operating expenses, depending on the employee’s department.

During the years ended* September 30, 2024* and2023, compensation expense related to share-based payments was as follows:

As of* September 30, 2024*, the Company had approximately $0.4 million of unrecognized compensation costs related to unvested shared-based payments, which is expected to be recognized over a weighted-average period of 1.4 years.

Common Stock Warrants

The Company typically issues warrants to individual investors and placement agents to purchase shares of the Company’s common stock in connection with public and private placement fund raising activities. Warrants* may*also be issued to individuals or companies in exchange for services provided to the Company. The warrants are typically exercisablesix months after the issue date, expire infive years, and contain a cashless exercise provision and piggyback registration rights.

Montage Warrant - As additional consideration for a prior loan arrangement which was paid in full in a prior periodnot presented, the Company issued to Montage Capital aneight-year warrant (the “Montage Warrant”) to purchase the Company’s common stock at a price equal to $132.50 per share. The Montage Warrant contains an equity buy-out provision upon the earlier of (1) dissolution or liquidation of the Company, (2) any sale or distribution of all or substantially all of the assets of the Company, or (3) a “Change in Control” as defined within the meaning of Sections13(d) and14(d)(2) of the Securities Exchange Act of1934. Montage Capital has the right to receive an equity buy-out of $250. If the equity buy-out is exercised, the Montage Warrant will be surrendered to the Company for cancellation.

Series A and B and C Preferred Warrants - In* March 2019,in connection with the issuance of the Company’s Series C Preferred Stock, the Company issued warrants to purchase the Company’s common stock. These warrants were designated as (i) Series A Warrants with an initial term of 5.5 years and an exercise price of$4.00; (ii) Series B Warrants, which expired unexercised during the Company’s2021* fiscal year, with an initial term of 24 months and an exercise price of$4.00; and (iii) Series C Warrants with an initial term of 5.5 years and an exercise price of $0.05 (collectively, hereinafter referred to as the “Series C Preferred Warrants”). The Company also issued warrants with an exercise price of $4.00 to purchase shares of the Company’s common stock to the Placement Agents. The Company* may**not* effect, and a holder willnot be entitled to convert, the Series C Preferred Stock or exercise any Series C Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed4.99% (or, at the election of the holder,9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise.

During fiscal2024, all Series A, Series C, and Placement Agent Warrants issued in connection with the Series C Preferred Stock and Investor Warrants expired.

Series D Preferred Warrants– In* May 2021,in connection with the issuance of the Company’s Series D Preferred Stock, the Company issued warrants to purchase the Company’s common stock. These warrants consisted of (i) warrants issued to investors in Series D Preferred Stock to purchase in the aggregate up to 592,106 shares of common stock with an initial term offive and a half years which ends on November 16, 2026and an initial exercise price of$2.51 and (ii) Placement Agents warrants to purchase an aggregate of 179,536 shares of common stock with an initial term offive years which ends on May 12, 2026*and an initial exercise price of$2.85. Collectively, these warrants are referred to as the “Series D Preferred Warrants.”

The Company* maynot* effect, and a holder willnot be entitled to convert, the Series D Preferred Stock or exercise any Series D Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed4.99% (or, at the election of the holder,9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise. As of* September 30, 2024,* no Series D Warrants have been exercised and the aggregate number of shares issuable upon exercise was 592,106 and 179,536 shares for investors and placement agents, respectively.

The Montage Warrants, Series A and C Preferred Warrants, the Placement Agent Warrants issued in connection with the Series C Preferred Stock, and the Series D Warrants were all determined to be derivative liabilities and are subject to remeasurement each reporting period (see Note5).

During years ended* September 30, 2024* and2023, there wereno warrants exercised.

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Total warrants outstanding as* September 30, 2024*, were as follows:

Warrant Issuances

The Company didnot issue warrants to purchase common stock during the years ended* September 30, 2024* and2023.

Summary of Option and Warrant Activity and Outstanding Shares

During the year ended* ** September 30, 2024* the Company granted (i) options to purchase 250,000 shares to members of management at an exercise price of $0.81, which vest ratably on a quarterly basis over athree-year period and (ii) options to purchase 80,000 shares to board members at an exercise price of$0.90, which vested immediately.

During the year ended* September 30, 2023*** **the Company, (i) issued 300,000 total options to its Chief Executive Officer at an exercise price of $1.18, which vest in36 equal monthly installments over athree-year period, (ii) issued 50,000 total options to employees at an exercise price of $1.34, which vest ratably over athree-year period in equal quarterly installments, (iii) issued 152,000 total options to employees at an exercise price of$1.18, which vest ratably over athree-year period in equal quarterly installments, and (iv) issued 200,000 total options to the Board of Directors at an exercise price of$1.18, which vested immediately.

The weighted-average option fair values, as determined using the Black-Scholes option valuation model, and the assumptions used to estimate these values for stock options granted during the year ended* September 30, 2024* and2023 are as follows:

The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise. Expected volatility is based on historical daily price changes of the Company’s common stock for a period equal to the expected life. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. The expected dividend yield iszero since the Company doesnot currently pay cash dividends on its common stock and doesnot anticipate doing so in the foreseeable future.

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A summary of combined restricted stock, stock option and warrant activity is as follows:

There were 1,543,890 and 1,148,097 options vested and exercisable as of* September 30, 2024* and2023, respectively. The options outstanding at* September 30, 2024* and2023 had an aggregate intrinsic value of $105,000 and $0, respectively.

A summary of the status of unvested options is as follows:

The following table summarizes information about outstanding stock options at* September 30, 2024*:

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13. Net Loss Per Share Attributable to Common Stockholders

Basic and diluted net loss per share is computed as follows:

Potential common stock equivalents excluded from the computation of diluted net income (loss) per share because their inclusion would have been anti-dilutive were as follows (in shares):

14. Commitments and Contingencies

The Company leases certain of its buildings under noncancelable lease agreements. Refer to theLeases footnote (Note11) of the Notes to the Consolidated Financial Statements for additional information.

The Company frequently warrants that the technology solutions it develops for its clients will operate in accordance with the project specifications without defects for a specified warranty period, subject to certain limitations that the Company believes are standard in the industry. In the event that defects are discovered during the warranty period, andnone of the limitations apply, the Company is obligated to remedy the defects until the solution that the Company provided operates within the project specifications. The Company isnot typically obligated by contract to provide its clients with any refunds of the fees they have paid, although a small number of its contracts provide for the payment of liquidated damages upon default. The Company has purchased insurance policies covering professional errors and omissions, property damage and general liability that reduce its monetary exposure for warranty-related claims and enable it to recover a portion of any future amounts paid.

The Company’s contracts typically provide for testing and client acceptance procedures that are designed to mitigate the likelihood of warranty-related claims, although there can beno assurance that such procedures will be effective for each project. The Company hasnot paid any material amounts related to warranties for its solutions. The Company sometimes commits unanticipated levels of effort to projects to remedy defects covered by its warranties. The Company’s estimate of its exposure to warranties on contracts is immaterial as of* September 30, 2024* and2023.

The Company’s agreements with customers generally require the Company to indemnify the customer against claims in which the Company’s products infringethird-party patents, copyrights, or trademarks and indemnify against product liability matters. As of* September 30, 2024* and2023, the Company hasnot experienced any losses related to the indemnification obligations andno significant claims with respect thereto were outstanding. The Company doesnot expect significant claims related to the indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, andno related reserves were established.

Litigation

The Company is subject to ordinary routine litigation and claims incidental to its business. As of* September 30, 2024*, the Company wasnot engaged in any material legal proceedings.

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15. Revenues and Other Related Items

Disaggregated Revenues

The Company disaggregates revenue from contracts with customers by geography and product grouping, as it believes this best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The Company’s revenue by geography (based on customer address) is as follows:

The largest concentration within the Company’s international revenue geography is within Canada.

Long-lived assets located in foreign jurisdictions aggregated approximately $1.0 million and $1.3 million as of* September 30, 2024* and2023, respectively.

The Company’s revenue by type is as follows:

Deferred Revenue

Amounts that have been invoiced are recognized in accounts receivable, deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Deferred revenue represents amounts billed for which revenue hasnot yet been recognized. Deferred revenue that will be recognized during the succeeding12-month period is recognized as current deferred revenue and the remaining portion is recognized as noncurrent deferred revenue and is included in Other long-term liabilities.

The following table summarizes the classification and net change in deferred revenue as of and for the years ended* September 30, 2024* and2023:

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16.** Income Taxes**

The components of the Company’s tax provision (benefit) as of* September 30, 2024* and2023, is as follows:

The Company’s income tax provision was computed using the federal statutory rate and average state statutory rates, net of related federal benefit. The provision differs from the amount computed by applying the statutory federal income tax rate to pretax income, as follows:

As of* September 30, 2024*, the Company has federal net operating loss (“NOL”) carryforwards of approximately $36.8 million of which $29.0 million is subject to the20-year carryforward and expire on various dates through2038. The remaining federal NOL carryforward of $7.7 million is indefinite. Internal Revenue Code Section382 places a limitation on the amount of taxable income which can be offset by NOL carryforwards after a change in control of a loss corporation. Due to these “change of ownership” provisions, utilization of NOL carryforwards* maybe subject to an annual limitation on utilization against taxable income in future periods. The Company hasnot* performed a Section382 analysis. However, if performed, Section382 * maybe found to limit potential future utilization of the Company’s NOL carryforwards. The Company also has approximately $50.2 million in state NOLs which expire on various dates through2044.*

The Company has deferred tax assets that are available to offset future taxable income. A valuation allowance is established if it is more likely thannot that all or a portion of the deferred tax assets willnot be realized. Management believes that it is more likely thannot that all deferred tax assets willnot be realized. Accordingly, the Company has established a valuation allowance against a portion of its deferred tax assets at* September 30, 2024* and2023. For the years ended* September 30, 2024* and2023, the valuation allowance for deferred tax assets increased by $0.5 million and $0.3 million, respectively.

The acquisition of HawkSearch during thethird quarter of fiscal2021 resulted in the recognition of deferred tax liabilities of approximately $1.2 million related to intangible assets. Prior to the business combination, the Company had a full valuation allowance on its net deferred tax assets. The deferred tax liabilities generated from the business combination netted against the Company’s pre-existing deferred tax assets. Consequently, the impact of such resulted in the release of*$1.2* million of the pre-existing valuation allowance against the deferred tax assets and corresponding deferred tax benefit recognized during fiscal2021.

We recognize deferred tax assets for stock-based awards that result in deductions on our income tax returns, based on the amount of stock-based compensation recognized and the statutory tax rate in the jurisdiction in which we will receive a tax deduction. We also recognize interest accrued related to unrecognized tax benefits in interest expense. Penalties, if incurred, are recognized as a component of tax expense.

The Company is subject to U.S. federal income tax as well as income tax of certain state jurisdictions. The Company hasnot been audited by the Internal Revenue Service (“IRS”) or any states in connection with income taxes. The tax periods from 2021 to 2024 generally remain open to examination by the IRS and state authorities.

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Significant components of the Company’s deferred tax assets and liabilities are as follows:

Net deferred tax assets are reflected in Other assets and net deferred tax liabilities are reflected in Other long-term liabilities on the consolidated balance sheets. There wereno undistributed earnings of the Company’s foreign subsidiaries at* September 30, 2024* and2023. The2017 Tax Act subjects a U.S. stockholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic740, No. 5, Accounting for Global Intangible Low-Taxed Income, provides that an entity* maymake an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years, or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Additionally, the2017* Tax Act provides for a tax benefit to U.S. taxpayers that sell goods or services to foreign customers under the new Foreign Derived Intangible Income Deduction (“FDII”) rules. As of* September 30, 2024* and* September 30, 2023*, the Company didnot have GILTI to be reported. When accounting for uncertain income tax positions, the impact of uncertain tax positions is recognized in the consolidated financial statements if they are more likely thannot of being sustained upon examination, based on the technical merits of the position. The Company’s management has determined that the Company hasno uncertain tax positions requiring recognition as of* September 30, 2024* and2023. The Company doesnot expect any change to this determination in the nexttwelve months.

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17.** Related Party Transactions**

In* October 2013,*Mr. Michael Taglich joined the Board of Directors. Michael Taglich is the Chairman and President of Taglich Brothers, Inc. (“Taglich Brothers”), a New York based securities firm. Taglich Brothers acted as placement agents for many of the Company’s private offerings and debt issuances.

In connection with previous private offerings and debt issuances which occurred prior to the fiscal years presented in these consolidated financial statements, Taglich Brothers were granted Placement Agent Warrants to purchase 4,246 shares of common stock at a weighted average price of $321.00 per share and were granted Placement Agent Warrants to purchase 10,926 shares of common stock at a weighted average price of $761.61 per share.

In consideration of previous loans made by Michael Taglich to the Company and the personal guaranty on a formerthird-party credit facilityno longer maintained by the Company, Mr. Taglich has been issued warrants to purchase common stock totaling 1,080 shares at an exercise price of $1,000 per share.

In* November 2018,the Company engaged Taglich Brothers Inc, on a non-exclusive basis, to perform advisory and investment banking services to identify possible acquisition target possibilities. Fees for the services were $8 thousand per month forthree* months and $5 thousand per month thereafter, cancellable at any time. Taglich Brothers Inc. could also earn a success fee ranging from $200 thousand for a revenue target acquisition of under*$5* million up to $1 million for an acquisition target over*$200* million. In connection with the asset purchase of Stantive, Taglich Brothers earned a success fee of $200,000.

Michael Taglich purchased 350 units in the amount of $350 of Series C Preferred Stock and associated warrants in the private transaction consummated on* March 13, 2019.Mr. Taglich’s purchase was subject to stockholder approval pursuant to the Nasdaq Stock Market Rule5635*(c), for which approval by the stockholders of the Company was obtained on* April 26, 2019.*

In connection with the Company’s registered direct offering completed in* February 2021,the Company issued Taglich Brothers 29,084 Investors warrants. Each warrant to purchase common stock expires five years from the date of issuance and is non-cash exercisable for $3.875 per share beginningsix*-months from the date of issuance, or* February 4,2021. The warrants expire February 4, 2026.*

In connection with the Company’s Series D Preferred Stock registered direct offering and PIPE completed in* May 2021,the Company issued Taglich Brothers 53,861 Investors warrants. Each warrant to purchase common stock expires five years from the date of issuance and is non-cash exercisable for $2.850 per share beginningsix*-months from the date of issuance, or* May 14,2021. The warrants expire May 12, 2026.*

18. Subsequent Events

The Company evaluated subsequent events through the date of this filing and concluded there wereno material subsequent events requiring adjustment to or disclosure in these consolidated financial statements.